Today’s Social Security column addresses questions about how inflation indexes at 62 affect income earned after past income, how benefit rates are calculated, adequate covered income, and family income. Recalculation of WEP deduction due to maximum benefit. Larry Kotlikoff is a professor of economics at Boston University and the founder and president of Economic Security Planning, Inc.
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Do you have your own Social Security questions that you want answered? Ask Larry about Social Security here,
Is Earnings After 62 Included When Social Security Calculates My PIA?
Hi Larry, I’ve done a bunch of searching online and can’t seem to find an answer to this question. I read that you take most 35 years of earnings which goes into the AIME number which is applied to the bend point formula to get your PIA at 62.
Then after 62, the PIA is only adjusted by COLAs such as those for those receiving benefits. Then after adjusting the COLA to the PIA, your rate decreases or increases when you claim relative to full retirement age.
I have also read that if your income falls under your highest 35 years of income after 62, this will change your AIME which can replace your PIA.
I haven’t found anything that explains how the PIA will be determined if I have incomes at 63 and 64 that have fallen in my highest 35 years. Will AIME Switch to PIA Formula in Earned Income Years After 62?
How are COLAs incorporated? thanks jimmy
Hi Jimmy, yes that year’s earnings when a person turns 63 and 64, and for that matter earnings in any other year can be included in their top 35 income years and their Social Security retirement benefit rate can be used to calculate.
An individual’s Primary Sum Assured (PIA), which can be effectively first calculated with the year in which they reach 62, is the amount they will receive when they reach full retirement age (FRA). You will begin receiving your Social Security retirement benefits within the month you reach . ,
Social Security retirement benefit rates are based on the average of the highest 35 years of an individual’s Social Security covered wage-indexed income. Indexing converts a person’s historical annual income into an amount more reflective of current dollars. For example, if a person born in 1959 earned $20,000 in 1991, their 1991 income would be indexed closer to $50,000 when calculating their Social Security retirement benefit rate.
The reason is that a person’s PIA for retirement benefits cannot be calculated until the year they reach 62, because their previous annual income needs to be indexed based on the Average Wage Index (AWI). required, the year they turn 60.
And those AWI amounts aren’t available until shortly before the year a person reaches 62. Thus, PIA and benefit rates for those who reach 62 after 2021 can only be estimated at the present time. The base PIA, calculated when a person turns 62, can be recalculated after any subsequent year in which they have earned more than one of their previous highest 35 years of wage-indexed income .
And all Social Security cost of living (COLA) increases that add up to a person’s base PIA once they reach 62, regardless of whether or not that person started taking benefits. Best, Larryu
Will Social Security Recalculate My WEP Deduction If I Have Extra Enough Income Years?
Hi Larry, I am under WEP and taking teacher retirement. I have enough covered earnings of 21 years.
When I turn 68, I want to start my Social Security retirement benefits soon. I will continue to report substantial income for two or three more years. Will the SSA recalculate my additional years with sufficient covered income or do I need to ask them to do so?
I know they will recalculate for a new PIA if appropriate. I understand that the SSA does its recalculation to take effect in January of each year. thanks, charles
Hi Charles, the short answer is yes. Social Security automatically recalculates Social Security retirement benefit rates to consider both additional years of earnings and additional substantial income years for Windfall Elimination Provision (WEP) purposes.
It looks like an increase in your profit rate that would result in additional years of earnings doubling. Social Security retirement benefits are calculated based on the average of an individual’s highest 35 years of pay-indexed Social Security Covered income, so if you have less than such 35 years, you can end up with zero income with your extra earnings. will replace years.
and on top of that increase, if you have additional years of income that is defined as sufficient for the purposes of WEP provision and if you currently have 20 to 30 such years, the WEP deduction applied to your benefit rate The amount will likely be reduced by 5% for each additional substantial year up to 30 years. If you reach 30 sufficient Social Security cover income years, no WEP deduction will apply.
If you currently have enough income years between 20 and 30, the only way an additional year of sufficient Social Security Cover income can’t increase your benefit rate is if the amount of your WEP deduction is calculated under the WEP guarantee provision. being done on the basis of
The WEP guarantee provision limits the amount of WEP deduction to no more than 50% of the full amount of an individual’s non-covered pension. The WEP guarantee generally only applies if an individual’s non-covered monthly pension amount is less than approximately $800.
Bottom line, both types of enhancements described above should be done automatically, with no action required on your part. However, such recalculations are not processed immediately. Social Security typically processes those types of recalculations in the fall of the year following the year of earnings additions, but any resulting rate increases are retroactive to the individual’s payments for January of that year.
You may consider using my company’s software — max out my social security or maxify planner – To thoroughly analyze your options so that you can make an informed decision about your best strategy to maximize your profits and avoid inadvertently leaving money on the table. Social Security calculators provided by other companies or nonprofits can give reasonable suggestions if they are designed with extreme care. Best, Larryu
Why didn’t my daughter’s benefit rate increase when her older brother was 18?
Hi Larry, I’m curious why my daughter’s survivor benefits haven’t increased when her sister turns 18. When my eldest child turned 18, my two other children’s benefits increased. The amount they kept on increasing, it appeared that they were distributing the check of the eldest child among themselves.
My daughter is the youngest and is only collecting one now, but why hasn’t it gone up when the middle child turns 18? thanks, howard
Hi Howard, The maximum rate that can be paid to a surviving child is equal to 75% of the deceased employee’s Primary Sum Assured (PIA). A maximum of two surviving children can always be paid their full maximum benefit rate if they are the only survivors receiving benefits on a deceased worker’s record.
So assuming that your daughter and her older sibling were the only two survivors receiving benefits, the younger child’s benefit rate did not increase when the older sibling stopped receiving benefits because the younger child had to. The maximum profit rate of 75% was already being achieved. PIA of the deceased worker.
The only time a surviving child benefit amount can be reduced by 75% of the employee’s PIA is if there are more than two eligible children, or at least two eligible children and one surviving spouse receiving benefits. In that case, they would have to split the family maximum benefit (FMB).
FMB can be anywhere from 150% of the deceased employee’s PIA to 187% of the deceased employee’s PIA. So the benefit rate for the remaining eligible survivors can sometimes increase when another beneficiary stops collecting benefits. But when only two children are receiving survivor benefits, there is no increase in the rate for the youngest child when the older child stops receiving benefits. Best, Larryu